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Good morning. Productivity downgrades are not everything, but they are almost everything. Some thoughts on that and Labour's other problems in today's note.

The Labour government has three big problems:

1) The OBR is set to downgrade its productivity forecasts, increasing the size of the predicted shortfall in the public finances, meaning that the government will have to raise taxes at the Budget.

2) Labour MPs think that the government is poorly led, openly speculate about a change of leadership and the taboo against rebelling has been well and truly broken. One reason why government whips, regardless of their party, have tended to prefer avoiding tricky votes rather than holding them even when the vote looks narrow, is that it is always easier to persuade MPs who have never rebelled to remain loyal than it is to get rebel MPs to stop rebelling.

3) The government is incredibly unpopular: it is polling at 20 per cent, and Keir Starmer's personal polling has collapsed. A new poll of voting intention in the Welsh Senedd election shows Labour falling further to a yet more distant third place. That makes it much harder to get recalcitrant MPs to vote for anything controversial or difficult. That the government has ended up retreating on everything from means-testing the winter fuel payment to the bulk of its welfare cuts aggravates that problem further.

Over on his Substack, James Breckwoldt has analysed the latest wave of British Election Study data to explain exactly where Labour's 2024 voters are going and what they are unhappy about. Surprise, surprise, the big problems are Labour's management of the economy and the condition of public services -- concerns that loom largest and are shared by all of Labour's lost voters.

The majority of its lost voters -- the Liberal Democrats, the Greens and "Don't Know" -- think the government is insufficiently pro-EU, while the voters who are shifting to Reform (they are less numerous but more electorally significant because of their location) think it is too close to Brussels.

The central cause of Labour's difficulties has been too much politics and not enough policy. Sure, it has introduced "popular" measures: raising taxes on "the rich" -- essentially Rachel Reeves has hiked every "wealth tax" the Treasury already levies -- cutting immigration, getting only as close to the EU as "not accepting free movement" will allow, furring up the arteries of our labour market. Even increasing employers' national insurance contributions was "popular" the day after the Budget.

The reason why the government is in a mess is not that it has become very unpopular in its first year in my view -- after all, voters are really volatile and governments can win them back. It is that its unpopularity has not really bought it anything -- Labour has had a strategy for avoiding taking unpopular actions, rather than a strategy for actually improving outcomes or becoming popular by 2029. Everything has been reactive and negative.

That means that the topic of conversation at Westminster is dominated by "how will this play in a hypothetical election in 2029?" rather than "does this work?" The biggest shift the government needs to achieve at the Budget and over the course of this year is it has to start doing things that it can credibly argue puts it on track for recovery at the end of the parliament.

I have been laid up with this cold that is doing the rounds so I have mostly been watching comfort television. I knew I was feeling a bit peaky when I realised I was struggling to follow The Americans, a terrific show I've recommended before, on Disney+. So I've switched to watching Xena: Warrior Princess, which was perhaps an excessive Apple TV purchase, but I am telling myself it is restorative.

Labour's strategy has been all pain, no gain